Skip to main content

tv   [untitled]    August 1, 2014 6:30am-7:01am PDT

6:30 am
industries, food service 5.4, retail trade 3.1, social assistance 0. personal services 4.4, manufacturing minus 0.1. every one of those industries has their wageses go up less than the overall city-wide average. notwithstanding a 26% increase in minimum wage. and when you look at the net effect on the two right columns, you basically see that for the most part they are negative when you account for and more negative than the adjacent counties when you account for the city-wide effect. so, this is a clear case in which there was not a big effect on wages on these five industries from raising the minimum wage in 2004. and, therefore, it shouldn't be surprising that there was no employment effect either. this was a minimum wage increase that while it was large on its own terms, its was not large enough to significantly raise the wages of these low-income industries. so, one of the first things we
6:31 am
needed to assess in looking at the proposed legislation is would you expect to see the same thing for wages, no real increase in wages and perhaps no employment effect, or would in fact this wage increase to $15 actually raise wages. i just kind of said those things. so, one of the things we did to get at this question was to build a statistical model that models from 1990 to 2012 for every county in california. these statistical relationship between what the minimum wage was and what the average weekly wage is. and we did a different model for each of these five industries. it made sense to us that the closer the minimum wage is to the average weekly wage, the bigger the bump. so, in effect, it's a nonlinear relationship in mathematical term. in other words, the same increase in the minimum wage, if it's way below the average wage, is not going to have much of an effect. an increase in the minimum wage
6:32 am
that's very near -- when it's near the average wage would have a big effect. so, we modeled that as well. and that gave us a set of projections on this slide about how we project annual increases in the proposed minimum wage what translates into increased average wages by each of these industries. and to answer the question iposed a couple slides ago, we are predicting rather large increases in wages to occur from the 2015 to 19 period. first thing i'll sale about the table, the years at the top are calendar years. so, they're not the 2016 increase over the 2015 increase. they're rather that's the average minimum wage in effect during that year and how that changes from one year to the next. and i should also say that these wage increases for each industry which range from 13% for manufacturing over the
6:33 am
five-year period up to 26% for food services are not solely caused by the minimum wage. these are also caused by inflation and other things that tend to affect wages. but this is what we predict, what a model projects, the increase in labor costs will be annually and then the far right column, the five-year combined effect of these wage increases he. and as i mentioned, it goes from 13% to 26% for these five industries. given this estimate of what the average wage change is, and we have a general idea how many people work in these industries and what they make now, in food services by 2019, the average wage will be $125 a week higher. in retail about 185 higher. about 75 in social assistance, 135 in personal services, and close to 200 in manufacturing. as i say, these reflect --
6:34 am
these estimates reflect expected inflation as well as the direct and indirect effect of the minimum wage. so, this level of labor costs, as i said a few moments ago, can be expected to have an impact on employment in the city. the way we always use this any time there is legislation that affects labor costs is we use the remi model that we have, a 70 sector model of the san francisco economy. and what we basically did in this model is to take these projected wage increaseses for each industry in each year, take away from them an expected wage increase associated with inflation and the baseline remi model and we are left with a real impact on wageses from raising the minimum wage for each of these five industries. we simulated what the effect of that would be on the san francisco economy compared it to remi's baseline projection it it results in about 15,270 fewer sector jobs by 2019 which would be by that year about 2%
6:35 am
of the private employment in the city. these employment reductions distributed across the city's economy because when you have less spending -- you have less employment, there is a loss of spending on a net basis, and that spending tends to contract every industry of the city's economy. but it's particularly concentrated in food services and retail which are the two biggest low-wage industries that would experience the labor cost increase under this proposal and they account for about half the total. now, the relevance of this effect or to the extent to which people will feel this or notice this effect partly depends on this employment effect. it also depends upon the level of the city's continuing employment growth over the period and the question of whether the city will grow notwithstanding this employment effect that we're talking about here. we turn to this question now. we look at three generally when we're doing projectionses of the city's economy, we look at
6:36 am
three third-party projections. one from the employment development department, one from moody's analytics, and one which is the baseline projection that comes with our remi model. none of these three sources are currently projecting recession in san francisco during this phase-in period 2015 to 19. this is' not unusual because it's not unusual for projectionses to not forecast a recession ~. particularly when we're talking about four or five years into the future. i wouldn't say that that's three people saying we will not have a recession in that period. they're actually never projecting a recession at any point in the future. they're just giving a most likely level of growth from one year to the next. but what they do agree is there will be a range of job growth they're projecting in the city between 27,000 and 59,000 additional jobs. the employment effect that we talked about on the previous slide, then, depending on which of these three projections you think is most likely represents
6:37 am
between 25% and 55% of the city's projected job growth over the next five years if these projections are accurate. there would still be a minimum job increase under the most pessimistic projection of 12,000 job in the city by 2019 even with this employment effect. the affected industries vary and whether or not they would grow during this period with this employment effect, and the main reason why is because the projections themselves are unclear on the direction of growth in these industries. for food services and social assistance, the projected employment effect of the minimum wage that we find and the projections for each of these industries that all three of these projections find would show continued growth in both of those sectors. so, that means they would all agree that there would be growth in restaurants, not as much growth, of course, but
6:38 am
there would continue to be growth in restaurants and continue to be growth in social assistance with this increase and there would be no net impact on manufacturing, but the projections are not an agreement on the direction of that sector's employment in the city. they are also not in agreement with respect to retail trade and personal services, two of the projections are projecting overall declines in those industries, notwithstanding the minimum wage increase, edd is projecting continued growth. the minimum wage increase effects on these industries don't tip -- they certainly don't tip the ones that are projecting loss into growth, but for the edd projections which are projecting growth for these industries, the growth exceeds what the -- what we find the employment effect for these industries will be under the minimum wage. so, there's a general lack of clarity, of course, about projections in the future. there seems to be the most consensus among the projections that we've looked at showing
6:39 am
that the city overall, and in particular the food service and social assistance industries, would continue to see growth during this period notwithstanding the employment effect that we talked about. we made one recommendation to the city as a result of this analysis which is to say that the possibility of a recession that would negate these growth projections is nontrivial. it wouldn't be a 10 year period of economic growth if we don't have a recession by 2019 and i would say there is some possibility if that's the case. and we recommend the city may wish to consider adding flexibility to the proposal in the event there was a recession during that time period. so, i think that concludes my review of our report and i'd be happy to take any questions that you have, commissioners. >> commissioner dooley. >> i was wondering if we know in the low-income workers they're not increasingly not --
6:40 am
no longer able to afford to live in san francisco. so, how can we kind of balance out where their increased wage is going to go? is it going to go to oakland or outlying areas? seems like there will be more people willing to commute for the higher wage into san francisco. >> it is a commonly believed thing that the number of low-income people in san francisco is dropping a the average housing price rises. in fact that's not true. the low-income and very low-income population in san francisco has continued to increase. and when we checked this spring on some of these industries, the percentage of workers for example in the restaurant industry is as high as it's ever been exciteding 75%. we would completely grape for those workers who don't live in san francisco and who commute in, their minimum wage increase creates economic expansion primarily from where they live and not for the city of san francisco.
6:41 am
~ agree >> any other commissioner comments? commissioner dwight? >> i'd say a lot of what we currently know is it's too early to tell. lots of people are on leases that are going to come due. we're seeing that in the business sector. i'm quite sure that's true in the residential sector. so, i don't think we've seen the full impact of the increase in real estate prices for residents or businesses just yet. i know anecdotally as leases are coming up in the business sectors, small business sectors that we're familiar with, the rent increases are double if not triple digits. and that is also the case in nonrent controlled apartments. so, i think the problem that i see with the economic projections is that they don't
6:42 am
fully account for the effects we're going to see because we don't know them yet and we haven't seen them yet. everyone likes to think it's all rosy right now, yeah, the dooms sayers aren't right because it's not played out yet. secondly, i think that, you know, by all current projections the job growth is going to be most dominant downtown amongst office workers and knowledge workers. they have to fill those high-rises. there are some very expensive buildings going up and clearly the projection are those are going to get filled and they're not going to get filled with minimum wage worker. so, the city is, of course, projecting and likely to see dramatic job growth. i think that the trade-off we're going to see is that this low -- below income job loss is going to get lost in the noise. and, you know, there is going to be a ripple effect here. what's going to happen is if the small businesses that rely on low -- low-income wage earners either for entry level
6:43 am
or just for low-paying jobs because of by the very nature of their low paying, if they can't afford to employ those people, then those businesses will move and they will take with them all of the other jobs that are above those. and, so, the collateral damage in this is we will lose the businesses and the ancillary jobs, the upper level jobs that go with these minimum wage job. we're going to see a redistribution of business in san francisco. sure, there's still going to be inexpensive restaurants, but those inexpensive restaurants are not going to be local entrepreneurs, they're going to be the large national chains that can afford to cost average. the mcdonald's, mcdonald's isn't going to go anywhere. mcdonald's has hundreds and thousands of restaurants across the nation and the world that they can income average on. what we're going to lose is the individual entrepreneurs, the opportunities for locals to start, operate and own businesses. and a lot of long-time business owners are going to go out of business. we can just write it off to
6:44 am
darwinian economics if we want, but they're never going to come back when we have a recession. once you move, you're not coming back. it's done, moved on. i'm over it. and, so, i think, you know, it's going to change the complexion of san francisco. i think it's inevitable. it may not be lamental. it's going to be lamental for those who get forced out of business. i think it's just foolish to think that's not going to happen. and, so, we can do all of the prognostication that we want, but i know on the ground that business owners are planning on how this is going to affect them and those plans include closing up or moving out. and, so, i am concerned as a small business commission that, you know, we're going to sit by and watch it happen. and i don't think there is any changing this freight train's direction. it's coming, it's going to pass, we all know it, and it's
6:45 am
-- so, you know, it's informative to read the studies and consider the prognostications, but i think that, you know, that the future is going to look different. and i think it's going to look less small business, a lot bigger business. you know, i don't think that -- and i think a lot of these people that are going to benefit are, in fact, going to move out of the city and be people that come in from the outside. so, it's unfortunate that san francisco ultimately will not benefit from this rise in minimum wage in a way that we would hope. >> thank you. all right. commissioner tour-sarkissian. >> thank you, mr. eagan. i have a question about the remi simulation. i'm referring to your slide number 19, which you report that an estimation of 1500 -- 15,270 private sector jobs will
6:46 am
be lost by 2019. first, i would like you to explain to me what the remi simulation is and whether it takes into account -- into account all the increases in cost of operation in the city, benefits, sick leave, that may not have been in place in 2004 that are in 2014 or 2014 to 2019. curious to find out whether that was included as well, could have further increased the loss or simulation loss of jobs. >> so, the remi model is basically a system of economic equations, several hundred economic equations that are set up in which some of the variables in these equations are policy variableses. they're things that our government might want to change, or the things that a government might want to change would affect these things.
6:47 am
labor costs, the average compensation rate for industries, are the policy -- are among the policy variables. in the remi model, those are the ones that we changed in this particular simulation. when he we talk about employment effects with remi, we're always talking about the difference between a baseline projection in which the policy doesn't happen and how the economy would evolve differently if you make the changes in the policy variables that we're talking about. so, the 15,000 starts in 2015. it's based on an identical situation 2014. so, everything that happened from 2004 to 2014 is already baked into the baseline projection, and we're only talking about the difference of increase -- the difference on the city's economy of increasing the average compensation rate for the industries i alluded to in the way that i talked about. >> but then you would have taken that into account? >> yes. >> that's the baseline? >> right.
6:48 am
we could have said, you know, we weren't around doing some of these studies before then, but we would have done those in the same way and looked at that difference from the original baseline. but by 2014 that's kind of water under the bridge. >> right. just the full out question, how do you reconcile -- kind of a clarification with the next slide where projections are dramatically different? could you dwell on that a little bit and then explain to me how you reconcile your remi findings with all of these statistics? [speaker not understood]. >> well, i don't think they do say otherwise. i think we're talking about two different thing. >> okay. >> with the remi which is frankly the statistic on here which i think is the most sound, the 15,000 number, because it's not trying to project the future, it's trying -- directly. it's trying to say based on the way the san francisco labor market works, if you raise wages this much, how much less
6:49 am
hiring do you have. what's really uncertain is what the future looks like and that's why the economic projections of what's the overall city's economy going to do from 2015 to 19 or inherently are uncertain. when you look at the covers on this, what's really striking is the extent to which some of them think that the city will not grow jobs in retail trade again ~. the city is basically peaked, and not just the city, but the country as a whole has kind of peaked in retail trade and will not be adding people to that industry. edd, on the other hand, is basically basing its projections off the past over the previous business cycles, retail trade has been a healthy source of jobs in the city and they are projecting the same is true through 2020. and the same -- they're making the same projection for 2000 -- i'm sorry, for personal services. so, the real difference between these projections is around retail trade.
6:50 am
to what extent completely separate from the question or concerning the minimum wage is this an industry that's going to grow jobs at the rate it has in the past. i've just been looking at the 2013 job numbers for retail trade-in san francisco. they've just come out in the past couple week. they show about 5% growth in retail trade employment in the city. that's not as fast as some other industries in the city, but it's faster than average for san francisco and it's very healthy job growth. so, i think we're immediately going to see revisions the next time we get those projections that retail trade may be healthier than they would have thought, but i understand the reason for the uncertainty about retail trade. i think the internet is affecting that industry more than any other industry, maybe outside of the information sector itself. and i understand that there's a real uncertainty there. >> commissioner dwight. >> i'm curious on page 17, this is the estimates of annual
6:51 am
increases by sector. and the one that stands out most is manufacturing at the bottom, only increasing at roughly 3% per year. i don't quite understand why it's tracking at less than half the increase in minimum wage. >> the statistics for manufacturing show that since 2009, that sector has really rapid average wage increases he in san francisco. so that now the average wage is around $20 an hour ~. and it will, frankly, for reasons not having anything to do with minimum wage increases, it's turning into a different activity and it's going to be the least sensitive of any of the industries to minimum wage increaseses for that reason. >> okay. >> commissioner riley. >> hi, i echo commissioner dwight's concern about the impact to small business. so, will you be able to track separately what the impacts are like job loss or increase for the small business?
6:52 am
>> do you mean small business as separate from the rest of the economy? >> yes. >> i think we can do that. i would certainly envision doing this type of analysis that i reviewed before for the 2003-2004 experience doing that every year as we phase this in i'm sure we'll get asked this question how accurate was our projections and thing like that ~. and i do believe that we wouldn't have any problem doing -- breaking that out for small businesses. >> thank you. >> any more questions? seeing none, is there any public comment at this time? seeing none, any other comments, commissioners? you did say that you will be able to track the small businesseses separately? >> yes. ~ >> can you do a projection for the small business [speaker not understood]? >> i don't have the projections that we have are industry by industry ~.
6:53 am
they're not size or business based. so, we don't have the forward-looking projections of how much of the job growth is going to be in big versus small business. but one of the things that we would be able to do after a year after the minimum wage increase goes into effect, we could say, well, this is how the overall city's economy grew and these industries, and this is howl the smallman businesses in those industries grew ~. >> commissioner dwight? >> i do want to thank you for all this analysis. i know you put a lot of hard work into this and i appreciate you summarizing it in this effective fashion for us. so, thanks very much. >> thank you, commissioner. >> thank you. >> yes, i would like to thank you, ted, for those very informative -- i know you guys put a lot of work into it. and as you were going along with your presentation, i had questions and the next thing you answered. very well. >> thank you, commissioner. >> thank you. next item.
6:54 am
>> next item is item number 4. we have a presentation and discussion on the history and background of state law ab 2732 and subsequent laws that establish california business and professions code sections 120242, 12024.6 and 12103.5. commissioners, i'd like to introduce to you our, sf law student volunteer wyatt robarts [speaker not understood]. at the commission's retreat, with the elimination of the committees where we would do the preliminary research looking at some policies that affect policies, regulations that affect small business, what we are going to be doing now is present to you in different stages. so, we have today an introductory stage around the pos system and this regulation.
6:55 am
it's not a complete presentation from beginning to end with answers, but to set the stage we are going to be having a presentation from the department of public health at the august 25th meeting with the idea of taking a look at these regulations, is there something we can do. this one in particular i think sort of, as was touched upon, this really affects the retail sector. and as we take a look at the growth of the online retail sector, we're hearing from small businesses, the regulation that applies to them. brick and mortary is not equally applied in relationship to online. so, wyatt is going to present to you the beginnings of this and feel free to ask questions and provide any direction in term of where you think you would like to -- further information that you would like
6:56 am
on this subject matter as we work on this. and then the objective is to develop a policy recommendation to the city, possibly the state around this particular regulation. >> that's great. welcome, wyatt. >> thank you. my name is wyatt robarts like regina just said. i did my research on point of sale legislation at the state and local level and see kind of where we can move from there and what kind of questions we'd have for the august 25th meeting. so, i want to start with state law. ab 2732 was introduced in 2002 and that was requiring businesses to conspicuously display price and have that price be easily viewable by customers when using automatic check-out system. and the bill won't go into
6:57 am
effect until 2017 because [speaker not understood] and the justification behind this bill was that the department of consumer affairs found that one-third of retail businesses he overcharged for sale priced items when using those automatic check-out systems. and then in 2005 there was another bill that had passed to establish authority for counties to inspect accuracy of these point of sale systems in the retail businesses. ~ 2007 and then moving to the local ordinance that was adopted in 2010, and i just want to go through a couple of definitions. just bear with me here. point of sale station means individual and separate equipment a capable of recovering electronically stored price information that is used to charge consumers for the purpose of commodities and
6:58 am
point of sale stations, what are we talking about [speaker not understood] but is not limited to equipment that uses universal product code scanners. the price look up codes or any other system that relies on the retrieval of electronically stored information to complete a transaction. and then business locations means each business essentially that use he point of sale stations. the fee structure here is important for the local ordinance. each, each business is charged $75 and plus $14 for every point of sale system they have and this cannot exceed $773 per each locationedthv and what what really interesting about doing research on the fee structure is that local counties, surrounding counties have different price structures, and san francisco actually fell a little bit lower than some of these, but we also looked at state levels,
6:59 am
too, and chicago was very insightful, gave a different perspective. and then we go into that. chicago, it doesn't allow the registration or it doesn't require registration for retail businesses that individually mark each item with the price in their store. and that's not something currently that san francisco has and might be something good to look into for the smaller businesses that have less item and then they just mark, mark their goods. it's less likely to [speaker not understood] consumers going into the store, everything is priced. so, just something to keep in mind. and retailers need to be certified every four years versus san francisco's every one year. and the cost structure for chicago is $250 for small stores, and small stores being
7:00 am
stores that have three or fewer point of sale systems. and chicago says you must not overcharge 4% of the item that are scanned during inspection whereas san francisco ha 2%. so, san francisco requires a 98% accuracy rating on inspection where chicago is 96%. and then online retailers, we looked at the larger retailers because they were the ones that created the need to establish this regulation. and our local ordinance here in san francisco explicitly cited california business and professions code 12 0 24.6 ~ and that states that no personal firm, corporation or association shall advertise, solicit or represent any means a product for sa